Published: November 12, 2012 at 10:07 am

Since topping out around $700 per share in September, Apple Inc. (NASDAQ:AAPL) has been on a steady downward trend and reached $547 in after hours trading on November 9th; this is a 22% decline. Apple bears are coming out of the woodwork, with public price targets- which previously had been discussed in the $900s, with a trillion dollar market capitalization seemingly inevitable- now flashing at $425 or so. Apple Inc. (NASDAQ:AAPL) is still up 33% year to date, and it’s likely that some profit takers are moving out of the stock.

However, this correction has placed the dominant Apple at only 12 times trailing earnings, which would be considered a value price even if the company was barley growing. In the fiscal year ending in September 2012, Apple Inc. (NASDAQ:AAPL) turned in a 45% increase in revenue compared to the last fiscal year; top line growth in that year had been 66%. Net income over the same period has nearly tripled, even with the company coming close to doubling its investments in research and development. This reflects a deceleration in growth as it has grown to a massive size, but its fourth fiscal quarter growth rates over the same period last year were still above 20%. Even with the scary-looking price targets, analyst estimates imply a forward P/E of 9 and a five-year PEG ratio of 0.5. We do think that competition from Google Inc (NASDAQ:GOOG) and Amazon.com, Inc. (NASDAQ:AMZN) as well as potentially Microsoft Corporation (NASDAQ:MSFT) could trim growth, but Apple has plenty of room to underperform these targets and still be a good value.

Apple Inc. (NASDAQ:AAPL) had been the most popular stock among hedge funds in the second quarter of 2012 (see the full rankings). Two of the funds leading the charge had been Tiger Cub Rob Citrone’s Discovery Capital Management and billionaire David Shaw’s D.E. Shaw; each held positions worth over $1 billion in market value. Discovery had increased its holdings 8% to nearly 2 million shares, making it by far the largest position in the fund’s 13F portfolio (see more stock picks from Discovery Capital Management) while D.E. Shaw had actually cut its stake slightly to 1.8 million shares (find more stocks that D.E. Shaw owned).

Google and Microsoft are the best companies to compare Apple Inc. (NASDAQ:AAPL) to. Google carries a trailing P/E of 21 as its acquisition of Motorola Mobility Holdings has- at least temporarily- reduced its profits, though it has helped contribute to sales. Google’s stock has also been down, following a peak in early October. It trades at 14 times forward earnings estimates, a fairly large premium to Apple. We can see Google having better growth prospects, but it’s hard to say that it is undervalued compared to Apple at that price. Microsoft’s forward P/E is 9, and that includes a likely temporary boost to earnings as new versions of Windows and Office are released. We think that looks a bit cheap in absolute terms, but it’s tough to see Microsoft warranting an equal forward multiple to Apple.

Amazon continues to generate enormous optimism in the market, as its stock has held up despite an operating loss in its most recent quarter. Even if it hits Wall Street analysts’ targets, and turn in $1.77 per share in earnings in 2013 (compared to barely any earnings on a trailing basis) it will trade at a forward P/E of 128. Again, Apple looks like a better buy, and quite possibly much better. We can also compare Apple to Research In Motion Limited (NASDAQ:RIMM). Research In Motion’s revenues continue to decline, down 31% last quarter versus a year earlier, and it is not expected to be profitable either this year or next year. We think that we’d avoid that stock.

It’s not surprising that Apple’s business has slowed, but we think that the market may have overreacted. The company doesn’t need much- if any- growth to justify its current valuation.

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